MAP Pharma: Making Money From Migraines

MAP Pharmaceuticals (NASDAQ:MAPP) has a product called LEVADEX that I believe can improve the lives of migraine sufferers and make shareholders money while doing it. LEVADEX is an orally inhaled drug using a new form of dihydroergotamine, or DHE. The drug is up for FDA approval on March 26th, 2012. However, DHE isn't a new and experimental drug. It has been approved by the FDA, and it has been in use since 1945.

So what does LEVADEX bring to the table that's unique?

At this point, DHE has only been used in hospitals and clinics due to side effects including: nausea, vomiting, and dizziness. DHE is arguably considered the best way to treat a migraine because it works fast, treats multiple sub-types of migraines, and lowers the frequency of migraines in patients. However, DHE is both invasive and inconvenient because it must be injected and cannot be administered by a patient. LEVADEX would allow the new form of DHE to be used in an inhaler. From clinical testing, LEVADEX, lessens the side effects with only 5% of patients experiencing nausea and 2% of patients reporting vomiting. 66% of patients saw pain relief in the 1st hour. These benefits were roughly 25% higher than the placebo up to 8 hours after treatment.

Still have doubts?

On Jan 11th, 2010 the FDA told MAPP it didn't need a 2nd efficacy study performed for its New Drug Application (NDA). In other words, the FDA had seen effective results from the 1st study and felt comfortable since they had over 65 years of data from DHE.

Allergan (NYSE:AGN), a $26B pharmaceutical powerhouse, signed a deal with MAPP on Jan 31st, 2011 to collaborate and split profits and costs evenly for LEVADEX. The deal is for sales through neurologists and pain specialists in the U.S. and Canada only, leaving MAPP un-partnered for sales in the rest of the world. Allergan paid MAPP a $60M upfront fee and will pay up to $97M more in additional payments based on regulatory milestones.

I believe that LEVADEX is a low risk biotech (if ever a biotech was low risk). Gregg Gilbert, analyst at Bank of America Merrill Lynch, sees an 80% chance of approval by the FDA. You never know what red flags the FDA might raise. However, MAPP has already covered multiple safety studies including: studies that show the drug is safe and well tolerated for smokers and people with asthma, and a study that showed LEVADEX had no significant effect on the heart at 3x the intended doses.

So what's MAPP worth?

In the United States 30 million people suffer from migraines, with 29 million prescriptions filled in 2011. Since an estimated 30-40% of people failed one triptan drug, LEVADEX should be a first-line therapy. At $60/dose and a 20% market share, MAPP can recognize $175M in peak sales in the United States alone (remember Allergan receives the other $175M).

I estimate MAPP should conservatively recognize $350M in peak sales. The average biotech stock trades north of 2x estimated peak sales after FDA approval, and this number approaches 3-3.5x peak sales when biotech companies get snatched up in a buyout.

And the verdict is in…

At 2x peak sales, MAPP should be worth $700M after the FDA approval, or $23/share. To add the cherry on top, I believe Allergan will gobble MAPP up within 18 months after approval. The price tag should be $35-40/share, a greater than 100% gain from current prices. Allergan isn't afraid of swooping up attractive assets; it has acquired 5 companies or divisions since 2007. This reason is why an acquisition of MAPP is in the realm of possibilities, and I think it will occur within 18 months.